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Fresh perspectives on UK pensions – opportunities unlocked for corporates

Fresh perspectives on UK pensions – opportunities unlocked for corporates
Published Date
Jan 27 2026
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Ed JacksonSenior Associate, London

UK defined benefit (DB) pension schemes have typically been seen as a burden for employers and a red flag in acquisitions. Why? One key reason is the asymmetric regulatory regime, which requires employers to pay into schemes to plug any funding shortfall but makes it difficult to extract cash when there’s a surplus. Alongside this is the threat of the Pensions Regulator (TPR) using its powers against those involved with a DB scheme.

However, over the last few years, this picture has been shifting and the direction of travel of the UK government and TPR means that UK DB pension schemes should be viewed through a new lens. Trustees and corporates are being encouraged to review their pensions endgames and consider schemes as potentially valuable assets.

What’s changing?

Firstly, market movements have led to dramatic improvements in the funding position of UK DB schemes, meaning many are now dealing with surplus assets for the first time in decades. The UK government has estimated that UK DB schemes hold a collective surplus of GBP160 billion.

To capitalize on this, as part of its objective to inject cash back into the UK economy, the government is looking to break down several barriers which have traditionally made it difficult to access these excess funds.

Legislative changes will mean scheme trustees can amend their rules to allow the paying out of funds to employers; it is anticipated that trustees will normally negotiate a benefit for members as quid pro quo for this (which the recent UK Budget has signposted more tax efficient ways to achieve). Trustees will no longer need to demonstrate that payment is in the interests of scheme members, though they will still have to satisfy their fiduciary obligations in agreeing to any payment. The government is also looking at lowering the funding bar above which funds can be paid out, meaning more cash is potentially accessible. This follows last year’s reduction of the tax on payments of surplus to employers from 35% to 25%.

TPR is supporting this mindset shift: this summer, it published guidance encouraging schemes to reconsider their endgames. Running on a scheme, with the potential aim of paying out surplus, was front and center of the options.

There are a range of things to think about when considering whether to run a scheme on or buy-out (paying an insurer to take on the scheme), for example:

Run-on vs. buy-out

Run-onBuy-out
Pros
  • Potential for generating surpluses, which could benefit members and employers.
  • Continued relationship between scheme, employer, and members.
  • Very limited future risk of liabilities or ongoing costs—the scheme is off your books.
  • Security for members: the insurance market is highly regulated, with protections in place to guard against insurer failure.
Cons
  • Initial project work to set up a robust structure with guardrails to protect against any fluctuations in funding.
  • Ongoing costs of a scheme (both time and financial).
  • Continued reliance on the employer covenant—trustee regret risk.
  • Project costs: a buy-out can involve significant outlay of time and money.
  • Value for money: insurers will naturally be charging a premium for taking on your risks.
  • Potential negative reaction from members for losing the opportunity to receive augmented benefits.
  • Potentially negative accounting impact (particularly for corporates using U.S. accounting principles) compared to running on the scheme.

What should corporates be doing and when?

Positive steps can be taken now.

Although some of the legislative changes aren’t expected to come into effect until the end of 2027, decisions being taken now will impact whether or not you are in a position to take advantage of them. For example, if the current endgame plan is to aim for buy-out with an insurer, investment decisions (i.e., moving away from investing in growth stocks) will be made on that basis and projects may already be in train. Time will also need to be built in to agree an arrangement with the scheme’s trustees (who ultimately need to agree to any extraction of surplus). Being prepared and approaching them with a robust proposal is a good starting point.

Some initial questions to consider are:

  • What’s the scheme’s funding position?
  • What’s the current endgame plan?
  • What’s the accounting impact of each of the available endgame options?
  • What incentives can you offer trustees to persuade them to agree to your preferred endgame solution?
  • What guardrails will you put in place to ensure scheme funding doesn’t drop too low after surplus extraction?

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